Fidelity Magellan: Still in the Dumps

After Legg Mason chief investment officer Bill Miller last week said he would step down in April, a number of commentators noted that he might be wishing he had stepped down a few years ago, when his fund was still on top.

Some other famous stock pickers, such as Peter Lynch and John Neff, managed to get out with their legacies still in tact.

But while Lynch’s legacy was saved, that of his former fund is suffering. The Fidelity Magellan mutual fund has lost more than 4% annualized over the last five years, according to Morningstar, more than 3 percentage points worse than the S&P 500. Underperformance since Lynch left led to a revolving door of managers. Jeffrey Feingold most recently took over in September.

This week, Fidelity disclosed how that underperformance is hurting the amount of fees Fidelity can collect. According to an SEC filing, Magellan collected $32.5 million in management fees in the six months ended Sept. 30, which included a negative $22.7 million adjustment for poor performance.

The performance adjustment is meant to give an economic incentive to managers to beat their index and peers, but the fund’s board noted that the fund was in the last quartile among its peers over one, three, and five years. Performance-based incentives are all the rage in all sorts of professions apart from fund management. But for Magellan, it seems it hasn’t been enough.